The Malaysian Institute of Economic Research (Mier), in its third-quarter outlook report on the Malaysian economy has projected an annual gross domestic product (GDP) contraction of -5.5 per cent for the year 2020.
Mier also predicted negative effects for the already reeling local economy, if a recent attempt by Prime Minister Tan Sri Muhyiddin Yassin to declare a state of emergency had been successful. “The proposed national emergency to counter the new Covid-19 resurgence in this quarter would have tanked the economy this year, and further delay its recovery next year. “While that proposal had been rejected, the pandemic remains the major downside to the speed of economic recovery in 2021 and threatens to turn a V-shaped reversal to a U-shaped one,” the report noted.
The report then warned that its GDP projection for this year still remains subject to the level of compliance to ongoing pandemic measures and how fast the infection can be contained, which are the main factors hindering economic growth. “The third wave of Covid-19 infections having occurred in 4Q2020 puts a damper on the GDP growth indicated for the whole of 2020, but leaves the prospects for economic recovery in 2021 intact.
“In the absence of additional government support for the last quarter, especially for the midsize SMEs, Mier is revising down its real GDP projection in the worst-case scenario for this year downwards to -5.5 per cent in real terms relative to 2019,” read the report. The report noted that despite recording a contraction of 17.1 per cent in the second quarter of 2020, the worst performance since 1998, it projects the economy to record growth of 2.0 to 2.5 per cent in the third quarter thanks to the government’s Prihatin and Penjana stimulus packages.
It also noted how the readings are based on their projections that the current wave of infections is flattened within a period of six months, similar to what was achieved in the first implementation of the movement control order (MCO). “While factoring in world prospects due to the global Covid-19 pandemic for growth, trade and investment, the main downside risk to this projection for the economy remains the current surge of the pandemic. “As the flattening of the pandemic had taken six months in the first wave, we expect the flattening of this third wave to take at least the same amount of time and will delay the recovery to the first quarter of 2021,” it noted.
As for the business sector, Mier projected possible growth entering into the fourth quarter despite cautious sentiments all around shown by investors. Mier’s Business Condition Index (BCI) indicators showed encouraging numbers for the third quarter of 2020, with the report predicting greener pastures ahead for the sector mainly driven by positive readings from anticipated sales from domestic and foreign markets, production volume, and employment when compared to the previous quarter.
Unemployment rates in the third quarter went up, said Mier, with 40 per cent of respondents admitting to downsizing, compared to the 6 per cent of respondents who released employees in the second quarter. It said current fourth quarter readings showed that only about half of the employers polled maintained all their employees, down from the 82 per cent who admitted the same in the third quarter. “The worst is in the retail and distribution sector.
“In the meantime, only business services sectors, representing 10 per cent of the employers, increased their number of employees for the third quarter of 2020,” read the report. It noted how unemployment rates are expected to remain around 3.7 to 4.5 per cent for the remainder of the year, only bolstered by the government’s Prihatin and Penjana stimulus packages.
Additionally, Mier suggested the government shift from a consumption-led and debt-driven economy to one based on investment and technology-led transformations to allow the country to escape the middle income trap.